As a result of the global commodities supercycle, the Indonesian
economy (
IDX
,
quote
) has experienced growth unprecedented in the country's previously
tumultuous history.
[caption id="attachment_72325" align="alignright" width="300"
caption="Going nowhere fast: Indonesia's infrastructure"]
[/caption]
Equities with large Indonesian exposure have been darlings of
the emerging market community. However, concerns are starting to
mount that political uncertainty in addition to a lack of
improvements in infrastructure and productivity will begin to
impede the country's progress.
The progress made by the Indonesian economy over the last decade
is nothing short of remarkable, transitioning from an incredibly
poor country to one of the stars of the emerging investment world.
In the past three years
, the ETF tracking the Indonesian economy has more than tripled.
However, in the wake of slowing global growth and a concomitant
decrease in demand for commodities, investors are starting to take
a closer look at the fundamentals of the Indonesian economy.
Simply, Indonesia needs to improve its infrastructure and
productivity if the country hopes to continue its enviable growth
rate. Infrastructure in the archipelago is sorely lacking --
Jakarta remains the largest city in the world without a metro and
the city's traffic problems belie the necessity of public transit
solutions. Other segments of the economy are hampered by the lack
of adequate infrastructure from aviation to freight transport as
airports, roads, and ports are insufficient.
The gains made recently by the Indonesian economy stem mostly
from the boom in commodities, not enhanced productivity. Although
the increased wealth in Indonesia has aided consumption, the
sustainability of elevated consumption remains in question if the
country remains over-reliant on commodity exports and does not
develop value-added industries to help drive the Indonesian
economy.
Signs of strain are
already starting to show
. The country's positive balance of trade shrank by more than half
from June 2011 to June 2012. The country's currency, the ruppiah,
has declined more than 12% against the dollar over the past twelve
months making it one of the worst performing currencies on the
planet. Analysts at JP Morgan believe that a "macro slowdown is
inevitable."
